An Islamic State supporter who once doused a Christian street preacher in lighter fluid and set him on fire has been arrested after loitering outside a Sydney police station allegedly armed with a knife.

Ayman Alkiswani was arrested in Surry Hills yesterday after allegedly loitering around Kings Cross police station armed with a knife, The Daily Telegraph reports.

Police believe they may have prevented a terrorist attack by the man, who posts about jihad and slaying zionists on Facebook and whose online friends appear to include soldiers in the Middle East and fellow supporters of radical Islam.

A senior source within NSW Police described Alkiswani as a "a serious concern".

He had reportedly been spotted loitering around a number of Sydney police stations "with no good" reason in the lead-up to yesterday's arrest.

In 2002 he poured a bottle of lighter fluid on a Brisbane street preacher and threw a match at him.

Paul Sheehan was nearly killed in the attack and suffers post-traumatic stress disorder to this day.